9 HR Mistakes Startups Commonly Make

The 9 HR Mistakes Startups Make & How to Avoid Them

Starting your new business venture is an exciting time. Between picking a name, hiring employees, and ensuring you’re ready to start doing business, there’s no shortage of tasks required to get the ball rolling. Unfortunately, that also means there are a lot of potential mistakes along the way.

As a leading HR solutions company, ESS – Employer Support Services has helped many businesses avoid some costly mistakes that startups commonly make. Contact our office today to find out what ESS can do for your company.


Startup Mistake #1 – Paying Employees as Contract Labor

Startups often see paying employees as contract labor as an easy way of avoiding payroll taxes and the headache of payroll administration. Workers may also like getting paid on a contract basis to get paychecks that don’t have any deductions. Additionally, employers will assume that because someone is contract labor, there is no duty to provide workers’ compensation insurance. This is a very dangerous practice, and a common mistake startups make.

All it takes is one employee discovering that they owe more than they should in taxes at tax time and reporting it to the IRS. Or, for an employee to get injured. The employer will then be subject to all of the back taxes and penalties or large medical bills and wages from an injury.

Ensure you are protected by paying workers properly. If you need help understanding when someone should be paid as an employee, contact ESS. You can rest assured knowing our experienced team of HR professionals is here to help you.


an employee with his arm in a sling after HR made a mistake of not having workers compensationStartup Mistake #2 – Not Getting Workers’ Compensation Insurance

Startups, especially those who work from an office or work-from-home environment, may think they are safe from workers’ compensation claims. But accidents happen. Whether it is an office worker tripping over a box that results in a back injury or an employee in a traffic accident going to or from the office supply store, these claims can result in the quick demise of an otherwise successful business.

Startups may make the mistake of assuming they don’t need workers’ compensation insurance. However, in most states, workers’ compensation insurance is required for an employer, even one with only one employee. Failure to get workers’ compensation insurance leaves a business vulnerable to very expensive claims.


Startup Mistake #3 – Misclassifying Workers

Exempt versus non-exempt worker status can be somewhat confusing. It may be tempting to take the easy way out and just pay an employee or all employees a fixed salary based on some assumed amount of work. Again, this can be a costly error and a serious mistake.

There are specific guidelines regarding who can be considered exempt. Employees that do not meet the qualifications of exempt and are paid a “salary” could be missing out on overtime wages. These wages add up, and once an employee becomes disgruntled and makes this discovery, you can bet they will be running to the Department of Labor.

The DOL will then step in and ask for payroll records for all employees, including time sheets. Without accurate time sheets, they will then look to employees to make determinations about the number of hours worked. Back wages and penalties then become very expensive. Avoid this common mistake made by startups by having properly classified employees and a good system of tracking time worked.

[Related: How To Classify Your Employees]


Startup Mistake #4 – Disregarding Unemployment Claims

Because startups don’t have a history of payroll and unemployment claims, they are given a standard unemployment tax rate. As the company continues, it pays payroll taxes, and unemployment claims may be filed by terminated employees, building a history. This history is then used to adjust the tax rate from year to year.

A common mistake startups make is not understanding how terminations and unemployment claims affect their bottom line. Generally speaking, when an employee quits or is terminated for cause, they will not be eligible to receive unemployment benefits. If a startup makes the mistake of firing multiple employees without cause, they will likely be frustrated to find future unemployment rates to be much higher. Keep your tax rate under control and avoid this common mistake made by startups by staying on top of your unemployment claims.


Employees talking in the officeStartup Mistake #5 – Not Paying Attention to Employee Culture

Since new businesses are typically focused on paying the bills and finding new customers, employees and how they feel about the work environment can quickly be put on the back burner. This is a huge mistake commonly made by startups.

Disgruntled employees and employee turnover can become tough obstacles to overcome. Good businesses will make company culture a priority before opening the doors. Ensuring employees are paid on time, they have access to good benefits, there is a good handbook in place communicating expectations, employees are trained well, and the company as a whole is organized will be key to your company’s culture.


Startup Mistake #6 – Not Offering a Quality Benefits Package

Startups may not have the capital necessary to offer quality benefits packages to attract the talent they want. Benefits like retirement plans, discounts, and cafeteria plans can go a long way to help with recruitment and retention.

For many in the workforce, healthcare and retirement plans are the bare minimum. If your startup makes the mistake of not offering these benefits, you could severely cripple your hiring pool.

[Related: Benefits to Improve Employee Retention]


Startup Mistake #7 – Assuming Employees Will Always Be Loyal

When a business first gets started, it’s easy to form camaraderie within the team and assume your employees are loyal. The mistake that many startups make is assuming that loyalty will last.

Relationships, unfortunately, occasionally turn bad. An employee that believes he or she is not being treated fairly will, in the best case, look for other employment. In a bad situation, the employee will look to file grievances with the DOL, IRS, EEO, or directly with the employer through the courts. Loyalty and trust are earned. Policies, procedures, and good documentation will provide protection when a relationship breaks down.

Don’t make the common mistake of failing to keep good documentation and putting iron-clad procedures in place. If your company needs help setting up policies, procedures, or keeping documentation, don’t hesitate to contact ESS. Our HR professionals will ensure your business is protected.


Startup Mistake #8 – Not Properly Training Employees

Another common mistake startups make is not properly training employees. Employers need to be careful in assuming what employees know. Proper training and documentation can pay huge dividends for customer service, protection from lawsuits, and safety. It’s important to understand what employees are capable of and their previous experience and then provide training to fill in the gaps.

If your employees deal with dangerous equipment, forgoing proper training can result in injuries and deaths. And, while office environments may be safer from an injury perspective, they aren’t free from the common HR mistake of not properly training new hires. One of the biggest risks in an office is data security. Your training should be extremely clear on your protocols and procedures to avoid any breaches in your systems.

Training should also help your employees fully understand your products and services. If employees are customer facing, they need to know how to handle almost any scenario they may face. Making the common HR mistake of not training employees could mean you lose sales, partnerships, and much more.

[Related: How To Improve The Onboarding Process]


Startup Mistake #9 – Not Properly Setting Up Payroll

With so many payroll and tax services available to businesses, this may sound like it’s easy. But software solutions without experienced help can get a company in trouble. Many startups make the mistake of assuming they understand how payroll and taxes should work for their business, so they opt to use a software solution. This can come back to haunt them in the future.

At ESS, we not only provide powerful HR software, we also help you understand how to effectively set up your payroll and tax administration for future success. It is important to understand what is required and who is responsible for each aspect of payroll and tax administration, otherwise, you could be making costly errors.


Avoid Mistakes When Starting Your Business – Call ESS

Unemployment claims, IRS tax penalties, EEO lawsuits, DOL wage claims, and workers’ compensation claims are the results of not setting up sound HR practices from the beginning. If you need help with getting your HR practices off to a good start, give us a call at 225-364-3000. Our team is here to help your business succeed and remain protected from these common mistakes startups make.

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